Regardless of tax news, don’t put off estate planning

Regardless of tax news, don’t put off estate planning

By Byron Moore, posted October 23, 2017

Originally published in the News Star and the Shreveport Times on Sunday, October 22, 2017.

Question: What do you think they will do with the estate tax law? I have put off estate planning since I keep hearing about changing they are considering, including elimination of it.

Answer: The current estate tax law is in a fog with visibility limited to about two to three years out. In fact, that’s the way its been for most of my career. I’m not looking for that to change any time soon.

But that’s not a good reason to throw in the towel and fail to do any estate planning. If you’ve done that, may I suggest that your idea of estate planning might be in need of an upgrade?

Good estate planning should be about much more than taxes. In fact, I believe some traditional “tax-focus-only” estate plans do more to harm a family than the taxes they purport to avoid. How?

Because the very strategies employed to avoid taxes may be setting up the family for failure.

The greatest part of America’s wealth lies with family-owned businesses. Family businesses are responsible for 78% of new jobs created. Yet only 12% of family businesses will still be viable into the third generation, with 3% of all family businesses operating at fourth generation level and beyond.

If you think about the way most “tax-only” estate planning is done, the focus could be summarized as The Four D’s of traditional estate planning:

Divide. Slice the estate into as many pieces as possible, so as to maximize gift and estate transfer techniques. If your only goal is to avoid taxes, this makes some sense. If you have a goal of keeping a family or a business together, this approach loses some of its appeal.

Defer. Through complex trusts and generational skipping techniques, defer wealth as far into the future as possible. This avoids taxes today. It also ignores the need to teach the next generation how to use the wealth they are going to one day inherit.

Dump. At some point in time, the money gets dropped on the doorstep of the next generation. What careful planning did to avoid taxes, careless planning fails to avoid – the wealth eroding effects of immaturity and a lack of wisdom by inheritors.

Dissipate. Too often, inherited wealth is greeted with an “I’ve won the lottery!” mentality. Untrained in the true stewardship of wealth, the downstream, untrained next generation(s) fritter away what should have been a sustainable source of family wealth for generations.

What if more of our estate planning efforts centered around certain “family first” strategies like “The Family Bank.” The Family Bank is just a figure of speech, not a chartered financial institution.

Advisor Lee Brower describes his concept of The Family Bank this way, “The Private Assets are accessed to provide grants for health, education, maintenance and support of family members. The assets can also provide enhancement loans and investment opportunities to family members.

“The Contribution Assets may also be available for access to provide family significance in participation of the philanthropic activities guided by the wealth creator and social significance in supporting the family’s choice of charitable causes.”

The key is that a structure is created that promotes responsibility, stewardship and family unity.

I don’t know what this Congress and administration will do with estate taxes. But I’m pretty sure another set of politicians in the future will change whatever this bunch may do next year.

Ben Franklin left one “sure thing” out – death, taxes…and change.

What doesn’t need to change is the focus of a good estate plan – put family first.

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